Mercedes courtroom battle: first line of defence filed amid accusations of delaying ways

A big group of long-standing Mercedes-Benz sellers in Australia is taking courtroom motion in opposition to the German automobile large over the approaching swap to a non-negotiable “fixed-price” enterprise mannequin. After the Federal Court docket introduced an finish to the corporate’s “delaying ways,” a concise assertion outlining Mercedes’ defence has been filed.

The landmark Federal Court docket case is more likely to expose how simply automobile sellers can have long-standing franchise agreements torn up or not renewed by multinational automotive giants, and the way readily sellers ought to spend money on future showroom and amenities upgrades.

The flow-on impact for new-car patrons is that, if sellers don’t have certainty about their future, native and regional showrooms and repair centres may shut within the years after a buyer purchases a car.

From 1 January 2022, all new Mercedes-Benz vehicles offered in Australia will solely be obtainable at fastened costs, with no room for purchasers to barter – and sellers shall be paid a charge to deal with the supply of every automobile.

Whereas it’s unlawful in Australia for automobile sellers representing the identical model to collude and set fastened costs amongst themselves when promoting new motor autos, automotive giants can at present exploit a loophole within the legislation in the event that they rewrite their contracts with showroom homeowners.

If automobile corporations rip up their previous contracts with sellers, don’t renew them, or enable them to run out – and write new agreements which appoint sellers as promoting brokers who don’t personal the showroom inventory – the automobile firm is allowed to set fastened costs.

Such a enterprise mannequin is deemed unlawful in components of the US and Europe, and the Australian Competitors and Client Fee (ACCC) says it protecting a detailed eye on the roll-out of fastened new-car costs right here, although it’s but to take motion.

An eight-page “concise assertion” outlining Mercedes’ defence – filed with the Federal Court docket of Australia late yesterday – mentioned earlier contracts between Mercedes-Benz and showroom homeowners “didn’t have an unconditional contractually enforceable entitlement to proceed as a supplier past 31 December 2021.”

Mercedes-Benz claims it has a “respectable industrial curiosity” in shifting to a non-negotiable fixed-price enterprise mannequin due to a market shift to on-line gross sales, a buyer dislike for haggling (described because the “negotiating stage”), elevated competitors amongst luxurious rivals, and since rising retail prices had “eroded” supplier profitability.

The German automobile maker mentioned from 2017 to 2019 new-car gross sales in Australia had declined by 10.6 per cent, and supplier revenue throughout the business had slumped from 2.6 per cent of turnover within the first half of 2015 to only 0.7 per cent of turnover within the second half of 2019.

Whereas all Mercedes-Benz sellers have signed as much as the brand new preparations, a gaggle representing about 80 per cent of Mercedes-Benz showrooms say they did so beneath duress “with a gun held to their head,” and subsequently commenced authorized motion within the Federal Court docket.

The massive group of long-standing sellers taking motion in opposition to Mercedes-Benz say they don’t seem to be being pretty compensated for the “goodwill and vital buyer databases” they’ve constructed up over prior years and a long time. 

A Mercedes-Benz supplier, talking on situation of anonymity, accused the automotive large of “coming in and successfully taking management of our companies in a ‘take-it-or-leave-it’ strategy, and taking our buyer base that now we have constructed up over years or a long time, and leaving us with crumbs (slim revenue margins) to run our showrooms.”

One other Mercedes-Benz supplier mentioned he wouldn’t have invested closely in showroom and amenities upgrades if he knew “(Mercedes) have been going to come back alongside and successfully take it from us”.

An announcement from Mercedes-Benz Australia confirmed the corporate had filed a “concise assertion” outlining its defence, and that it consulted with its supplier community within the years main as much as the change in its enterprise construction.

“We developed ‘retail of the long run’ in session with our passenger-car supplier community in response to adjustments within the business, client behaviour, and in the way in which new passenger autos are offered,” mentioned the assertion from Mercedes-Benz Australia.

“Our goal is to ascertain a stable basis for continued success in Australia for each our model and our retail companions, now and into the long run.”

The Australian Automotive Sellers Affiliation – which represents greater than 3000 showrooms throughout all main automobile manufacturers nationally – mentioned “Mercedes-Benz is completely entitled to vary its enterprise mannequin.” 

“Nevertheless, we don’t settle for the appropriation of a whole bunch of thousands and thousands of {dollars} in worth constructed up by the native (Mercedes-Benz dealerships) over a few years with out the cost of compensation,” mentioned James Voortman, the CEO of the AADA.

“Mercedes-Benz would have us imagine that lowering competitors will ship higher outcomes for Australian customers,” mentioned Mr Voortman, who says analysis from abroad reveals “that’s merely not the case”.

Mercedes-Benz is the second established automobile firm to change from a conventional supplier enterprise mannequin to non-negotiable fastened costs in Australia. Japanese automobile large Honda has adopted the observe since 1 July 2021.

Thus far, Honda new-car gross sales in Australia are roughly half what they have been previous to the transfer to fastened costs – at a time when new-car gross sales throughout the business have grown by greater than 20 per cent.

Honda Australia says it’s too early to guage the success or failure of its new enterprise mannequin as a result of it takes time to regulate, and the corporate says its plan is to be extra worthwhile by promoting fewer vehicles beneath the brand new regime.

Honda and Mercedes-Benz say the brand new system is fairer for customers – with equal entry to a broader vary of autos in inventory – however detractors of the scheme say it robs clients of the chance to barter on worth.

Within the case of Honda, analysis by Drive discovered its drive-away costs have risen by between $2700 and $5300 in comparison with their lowest level within the yr previous to the swap to fastened costs. 

“Whereas Mercedes would have us imagine customers are crying out for (the fixed-price enterprise mannequin), the expertise elsewhere and client analysis fully debunks this proposition,” mentioned Mr Voortman.

“The instance of Honda in Australia after implementing (the fixed-price enterprise mannequin) supplies a stark lesson: Honda is the one prime 20 automobile model in Australia to expertise three consecutive months of gross sales decline whereas all different premium manufacturers have skilled elevated gross sales.”

Whereas the automobile business is pushing the road that buyers don’t prefer to haggle, the supplier affiliation says its analysis reveals “Australians strongly worth the flexibility to buy round for the perfect deal,” with “90 per cent of customers surveyed stating the flexibility to barter on worth is ‘very’ or ‘fairly’ essential.”

Final month, the Federal Court docket of Australia overruled makes an attempt by Mercedes-Benz to delay the courtroom motion, forcing the German automobile large to file its defence in December.

The Federal Court docket has now carried out an accelerated timeline for the litigation, which is anticipated to see each events seem as early as January 2021, with a trial scheduled for August 2021, in response to the height supplier physique.

Mercedes-Benz has repeatedly mentioned it’s performing throughout the legislation and has carried out negotiations in good religion, with ample time for its sellers to contemplate their choices earlier than signing as much as the brand new fixed-price enterprise mannequin, which is because of start from 1 January 2021 until it’s delayed by the courtroom battle or attributable to another cause.

Mercedes courtroom battle: first line of defence filed amid accusations of delaying ways

Joshua Dowling has been a motoring journalist for greater than 20 years, spending most of that point working for The Sydney Morning Herald (as motoring editor and one of many early members of the Drive staff) and Information Corp Australia. He joined CarAdvice / Drive in late 2018, and has been a World Automotive of the Yr choose for 10 years.

Learn extra about Joshua Dowling